Magontec Limited (ASX:MGL) Executive Chairman Nicholas Andrews, Chinese President Tong Xunyou and Non-Executive Director Li Xingcai discuss record financial results, and technical milestones in the extraction of magnesium from salt lakes.
Tim McGowen: We’re talking today with Magontec (ASX:MGL). It’s got a market cap of around $32m. We’re joined by Mr Nic Andrews, who’s the Executive Chairman. We’ll also continue our interview with the Chinese President of Magontec, who’s Tong Xunyou, who will also talk with Magontec’s China-based partner in Qinghai Saltlake Magnesium Company. Qinghai Saltlake Magnesium Company is represented by Xingcai Li, who is also a Non-Executive Director of Magontec. Mr Li sits on the Magontec board as a representative of Qinghai Saltlake Magnesium Company.
Nick, thank you for your time. For those investors who don’t understand Magontec and don’t follow it, could you give us background on the company?
Nick Andrews: Magontec is, as you say, an ASX-listed company, and we have two principle businesses. We manufacture magnesium alloys in China, and we recycle magnesium alloys in Europe. So, customers, who are largely in the automotive industry, manufacturing and diecasting magnesium alloy products, buy primary magnesium alloy, they process it, and they generate around 40 to 60 per cent of that in scrap. That comes back to our scrap-recycling businesses, which are located in Germany and in Romania.
Then the second business we have is magnesium anodes, or magnesium and powered anodes, I should say. So, magnesium anodes and powered anodes go into hot water tanks. Every single hot water tank around the world has a magnesium or a powered anode in it. It’s a ubiquitous product, and it saves the steel structure of the steel tank from corrosion. We’re the largest manufacturer of magnesium anodes in the world and the largest manufacturer of powered anodes. And we have an emerging project in Qinghai in China, which we’re going to talk about a moment later, which is going to drive us to be a major producer of primary magnesium alloy for sale to customers all over the world.
Tim McGowen: And, Nic, you’ve been busy ahead of your AGM, but you’ve also had some record results. Can you talk to those results?
Nick Andrews: Yeah. So, last year, a little bit on the back of very, very strong magnesium prices, businesses, particularly in Europe but also in China in the magnesium alloy business, had very, very good results, and much of that was built on that price change. The result is that we generated about $158 million of revenue in the year and about $28m of cash. And, importantly for us, that cash generation really reduced our debt to a very low level — to zero, in fact. And now, at the end of the third month of the year, the end of the first quarter, we have around about $8m of cash and no net debt at all. So, we’re very pleased with that. It also allowed us to pay a dividend. We paid a dividend for the full year of 1.2 cents unfranked, and that’s a maiden dividend for our company.
Tim McGowen: You’re well-positioned with a strong balance sheet. Is M&A on the horizon?
Nick Andrews: M&A certainly is something that we’re looking at. We’ve looked at a number of different opportunities. Obviously, the size of our business dictates a little bit the size of the asset that we can look at, but there are a number of exciting opportunities for us, and I hope through this year we’ll be able to talk to shareholders more about those sorts of opportunities.
Tim McGowen: Thanks, Nic. I’ll now pass over to Tong Xunyou and Xingcai Li to discuss the Chinese-based project. Gentlemen, over to you.
Tony Xunyou: Hello, Mr Li. This is the first time that you will participate in Magontec’s AGM, in your capacity as the General Manager of Qinghai Huixin. You commenced in this role in January 2022. Can you tell us about some of the challenges you are facing and the solutions you are working towards?
Li Xingcai: Many thanks to Magontec. I am very pleased to be in Australia to attend the AGM and the board meeting. I started my role at Qinghai Huixin Asset Management (QHAM) in January 2022. QHAM is the parent company of the Qinghai Salt Lake Magnesium Company (QSLM). QHAM controls QSLM. After I took on this role, the biggest challenge for QSLM was how to tackle the outstanding technological issues facing QSLM’s pure magnesium production. Currently we are remediating the dehydration process. That is, the dehydration of magnesium chloride (MgCl2), because MgCl2 is the core issue which underpins the entire process. The MgCl2 raw material contains six crystallised water molecules that need to be removed completely. In our previous trial production, we had only managed to remove four of these molecules, and there were still two molecules which remained unprocessed. We worked on it throughout the whole of 2022 and conducted three trials. In the end, the product we had was successful, and we managed to solve the dehydration issue. In terms of the next steps, we still need to solve some issues in the electrolysis process.
Tony Xunyou: Great. Thank you for your answer. The recommencement of production at QSLM is a key event for Magontec investors and an important milestone as well. Can you tell us when you think this recommencement will happen?
Li Xingcai: The current facility at QSLM is the world’s largest for extracting magnesium from salt lakes, with a capacity of 100,000 tonnes per annum. I would say the global magnesium industry is watching QSLM closely, which gives us a lot of pressure. But we are confident. In 2022, we should focus on the core technology. There has been a significant breakthrough in the MgCl2 dehydration technology. We are confident that, in this year, we can tackle the problems of electrolysis to improve the Cl2 concentration as well as the improvement on transfer of Cl2. We will strive to complete the whole process by the first half of 2024. The technology used in Qinghai is “state of the art” in terms of delivering the highest environmental standards.
Tony Xunyou: In order to get it up and running, how much work is there still to be completed?
Li Xingcai: There is still quite a lot to be done. First of all, there are two key issues regarding the entire process of extracting Mg from salt lakes. The first issue is the dehydration of MgCl2. We have basically resolved this problem. The other issue is applying the anhydrous MgCl2 electrolysis technology. The biggest problem with the electrolysis technology is that the anhydrous MgCl2 has to be converted from solid to liquid, then put into the electrolytic cells. The chlorine gas produced will also need to meet certain quality requirements, as it will serve as the raw material for synthesising PVC. So, we will solve these two problems. Our main focus this year is to address the modification of anhydrous MgCl2 electrolysis technology. By the end of 2023, we will try our best to implement the modification of anhydrous MgCl2 electrolysis technology. Then, in 2024, we will upgrade another MgCl dehydration line. At the same time, all electrolytic cells will be modified from monopolar to multipolar. The workload is expected to be quite significant. We strive to focus on one line first, and by the end of 2024 we aim to have finalised the entire process and achieve mass production. We will endeavour to complete all modifications for the entire facility by 2025 (two lines).
Tony Xunyou: Regarding current overall business conditions in China, would you be able to share with us some of your opinions?
Li Xingcai: In the first quarter, China’s economy has shown a positive development trend compared to the rest of the world, with GDP estimated to be around 4.5 per cent. For the second quarter, the Chinese government, especially after the Central Economic Work Conference, released very positive policies that support economic recovery. As a member of the magnesium industry, the magnesium extraction industry and the broader chemical industry, we are very confident about China’s future economic development.